The Reserve Bank of India (RBI) has implemented revised norms requiring deposit-taking housing finance companies (HFCs) to maintain higher levels of liquid assets against their deposits.

Effective January 1, 2025, these companies must hold liquid assets equivalent to 14 per cent of their outstanding deposits. This includes 8 per cent in unencumbered approved securities, calculated as a percentage of public deposits, RBI notification gazetted on Tuesday said.

Furthermore, the RBI has mandated that by July 1, 2025, the total liquid assets requirement will increase to 15 per cent, including 10 per cent in unencumbered approved securities.

Prior to this update, deposit-taking HFCs were required to maintain 13 per cent of their public deposits as liquid assets. The phased increase to 15 per cent ensures a more robust liquidity framework, aiming to safeguard depositors’ interests and enhance financial stability.

As of March 2024, deposit-taking HFCs had mobilised deposits totalling ₹24,764 crore, a significant decline from ₹1,35,183 crore in March 2023. The drop in deposits reflects the shift in funding patterns among HFCs.

The RBI’s move aligns with its broader efforts to strengthen the regulatory framework for non-banking financial companies and mitigate risks in the housing finance sector.

Commenting on latest RBI notification, Anil Gupta, Senior VP & Co- group Head Financial Sector Ratings, ICRA said “Given that the total public deposits for HFCs stood at about ₹ 25,000 crore or about 2.5 per cent of their overall liabilities as on March 31, 2024, the proposed changes are unlikely to have a material impact on the HFCs”.

He said that the changes are made to harmonise the deposit taking norms for HFCs and NBFCs.

Srinath Sridharan, Corporate advisor, said that the issuance of this gazette notification is a logical progression in the broader strategy to harmonise the regulatory landscape governing HFCs and NBFCs.

Minimum capital

He noted that the RBI had in January last year issued a draft circular aimed at aligning the regulatory framework for HFCs with that of non-banking financial companies (NBFCs). This proposed harmonisation covers key aspects such as minimum capital requirements, deposit-taking norms, and other regulatory provisions.

Gupta highlighted that RBI has apart from changes in requirements to hold additional liquid assets, reduced the ceiling for public deposits to 1.5 times of net owned funds (from 3.0 times earlier) and maximum tenure of deposit was also reduced to 60 month (from 120 months earlier) to align these for HFCs with the norms applicable to NBFCs.